The GBP has been under pressure as of late mainly due to falling central bank rate expectations. Increased China-related growth uncertainty and further weakening commodity price developments have been driving investors’ UK inflation expectations lower.
From that angle there should be no pressure on the Bank of England to consider higher rates anytime soon.
In terms of data investors’ focus shifts to this week’s PMI releases. Unless services sector-related business activity improves considerably, inflation expectation should stay capped to the detriment of investors’ central bank monetary policy expectations.
As a result of the above outlined conditions we remain in favour of selling the GBP, for instance against the USD. This is especially true as the Fed should remain on track to consider higher rates well ahead of the BoE.
*Credit Agricole maintins a short GBP/USD positio from 1.5450, with a stop at 1.5850, and a target 1.4850.
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